A provision in a general tax law that railroads thereafter
building and operating a road north of a certain parallel shall be
exempted from the tax for ten years unless the gross earnings shall
exceed a certain sum is not addressed as a covenant to such
railroads, and does not constitute a contract with them, the
obligations of which cannot be impaired consistently with the
Constitution of the United States.
The facts are stated in the opinion of the court.
Page 191 U. S. 384
MR. JUSTICE HOLMES delivered the opinion of the Court.
This is an appeal from a decree of the United States circuit
court, dismissing the plaintiff's bill on demurrer. The bill seeks
to enjoin the Auditor General of the State of Michigan from
collecting a tax, on the ground that the law imposing the tax is
contrary to the Constitution of the United States as impairing the
obligation of contracts and interfering with interstate
commerce.
The alleged contract is contained in a law of May 27, 1893, ยง 3,
which, after levying a specific tax on railroads, provided
"that the rate of taxation fixed by this act or any other law of
this state shall not apply to any railway company hereafter
building and operating a line of railroad within this state north
of parallel forty-four of latitude until the same has been operated
for the full period of ten years, unless the gross earnings shall
equal four thousand dollars per mile, except,"
etc. Afterwards, on October 23, 1893, the Menominee &
Northern Railroad Company was incorporated under the laws of the
state, and forthwith conveyed all its property, rights, and
franchises to the plaintiff, a Wisconsin corporation, which is
assumed to stand in the shoes of the Michigan company. The
plaintiff thereupon constructed the road. This road is north of
parallel forty-four, its gross earnings never have been equal to
four thousand dollars per mile, and it would be entitled to the
exemptions just stated if the law of 1893 still were in force. But
on June 4, 1897, the state passed a law amending the act of 1893
and levying a "specific tax upon the property and business of
[every] railroad corporation operated within the state," and
enacted that
"when the railroad lies partly within and partly without this
state,
prima facie, the gross income of said company from
such road for the purposes of taxation shall be on the actual
earnings of the road in Michigan, computed by adding to the income
derived from the business transacted by said company entirely
within this state, such proportion of the income of said company
arising from the
Page 191 U. S. 385
interstate business as the length of the road over which said
interstate business is carried in this state bears to the entire
length of the road over which said interstate business is
carried."
This is the law which the plaintiff says is unconstitutional for
the reasons above set forth.
The demurrer to the bill was sustained on the ground that the
act of 1893 made no valid contract of exemption from taxation, and
that the act of 1897, repealing the exemption granted in 1893, was
a constitutional law.
The plaintiff makes a supplemental alternative argument that the
later statute should not be construed to repeal the act of 1893
with regard to roads in the plaintiff's position. If that were so,
the plaintiff would have no standing in this Court. But the repeal
is plain from the express words at the end of the section quoted
from the act of 1897, repealing all acts or parts of acts
contravening the provisions of that section, from the fact that it
is an amendment of the section quoted from the act of 1893, and
from the case of
Manistee & Northeastern Railroad Co. v.
Commissioner of Railroads, 118 Mich. 349, 350.
See also
Welch v. Cook, 97 U. S. 541. On
that question, we follow the state court.
Northern Central
Railway Co. v. Maryland, 187 U. S. 258,
187 U. S.
267.
The first and main question, then, is whether the act of 1893
purported to make an irrevocable contract with such railroad as
might thereafter comply with its terms. The question is pretty well
answered by a series of decisions in this Court. A distinction
between an exemption from taxation contained in a special charter
and general encouragement to all persons to engage in a certain
class of enterprise is pointed out in
East
Saginaw Mfg. Co. v. East Saginaw, 13 Wall. 373
("
Salt Co. v. East Saginaw"),
s.c., 19 Mich. 259.
In earlier and later cases, it was mentioned that there was no
counter-obligation, service, or detriment incurred, that properly
could be regarded as a consideration for the supposed contract.
Christ Church v. Philadelphia
County, 24 How. 300;
Tucker v.
Ferguson, 22 Wall. 527;
Grand
Lodge, etc., of Louisiana
Page 191 U. S. 386
v. New Orleans, 166 U. S. 143.
But, whatever the ground, thus far, attempts like the present to
make a contract out of the clauses in a scheme of taxation which
happen to benefit certain parties have failed.
See further,
Welch v. Cook, 97 U. S. 541, and
Manistee & Northeastern Railroad Co. v. Commissioner of
Railroads, 118 Mich. 349, in which the state court deals with
this very act.
It may be that a state, by sufficient words, might bind itself
without consideration, as a private individual may bind himself by
recognizance or by affixing a seal. A state might abolish the
requirement of consideration altogether for simple contracts by
private persons, and it may be that it equally might dispense with
the requirement for itself. But the presence or absence of
consideration is an aid to construction in doubtful cases -- a
circumstance to take into account in determining whether the state
has purported to bind itself irrevocably, or merely has used words
of prophecy, encouragement, or bounty, holding out a hope but not
amounting to a covenant.
In the case at bar, of course, the building and operating of the
railroad was a sufficient detriment or change of position to
constitute a consideration if the other elements were present. But
the other elements are that the promise and the detriment are the
conventional inducements each for the other. No matter what the
actual motive may have been, by the express or implied terms of the
supposed contract, the promise and the consideration must purport
to be the motive each for the other, in whole or at least in part.
It is not enough that the promise induces the detriment or that the
detriment induces the promise, if the other half is wanting. If we
are to deal with this proviso in a general tax law as we should
deal with an alleged simple contract, while, no doubt, in some
cases between private persons the above distinctions have not been
kept very sharply in mind,
Martin v. Meles, 179 Mass. 114,
117, it is clear that we should require an adequate expression
Page 191 U. S. 387
of an actual intent on the part of the state to set change of
position against promise before we hold that it has parted with a
great attribute of sovereignty beyond the right of change.
See
Vicksburg, Shreveport & Pacific Railroad v. Dennis,
116 U. S. 665,
116 U. S. 668.
Looking at the case in this way, then, we find no such adequate
expression. No doubt the state expected to encourage railroad
building, and the railroad builders expected the encouragement; but
the two things are not set against each other in terms of bargain.
See Covington v. Kentucky, 173 U.
S. 231,
173 U. S.
238-239.
But this is a somewhat narrow and technical mode of discussion
for the decision of an alleged constitutional right. The broad
ground in a case like this is that, in view of the subject matter,
the legislature is not making promises, but framing a scheme of
public revenue and public improvement. In announcing its policy and
providing for carrying it out, it may open a chance for benefits to
those who comply with its conditions, but it does not address them,
and therefor it makes no promise to them. It simply indicates a
course of conduct to be pursued until circumstances or its views of
policy change. It would be quite intolerable if parties not
expressly addressed were to be allowed to set up a contract on the
strength of their interest in, and action on the faith of, a
statute, merely because their interest was obvious and their action
likely on the face of the law. What we have said is enough to show
that in our opinion the plaintiff never had a contract, and
therefore makes it unnecessary to consider the usual power to
alter, amend, or repeal charters, etc., contained in the
Constitution of Michigan,
Tomlinson v.
Jessup, 15 Wall. 454;
Covington v.
Kentucky, 173 U. S. 231;
Citizens' Savings Bank v. Owensboro, 173 U.
S. 636, or a similar power in the general railroad or a
similar power in the general railroad law of 1873, of which the
above acts of 1893 and 1897 were amendments through intervening
amending acts.
We need say but a word in answer to the suggestion that the tax
is an unconstitutional interference with interstate commerce. In
form, the tax is a tax on "the property and business
Page 191 U. S. 388
of such railroad corporation operated within the state,"
computed upon certain percentages of gross income. The
prima
facie measure of the plaintiff's gross income is substantially
that which was approved in
Maine v. Grand Trunk Railway
Co., 142 U. S. 217,
142 U. S. 228.
See also Western Union Telegraph Co. v. Taggart,
163 U. S. 1.
Decree affirmed.
MR. JUSTICE WHITE, not having heard the arguments, took no part
in the decision.